U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

Commission File Number: 333-197642

Alpha Energy, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant's Phone: 713-316-0061

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 18, 2020,4, 2021 the issuer had 18,056,42818,414,428 shares of common stock issued and outstanding.

NOTE 1– BASIS OF PRESENTATION

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2019 2020, and 20182019 which are included on athe Form 10-K10-K filed on September 24, 2020. April 29, 2021. In the opinion of management, all adjustments which include normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows for the periods shown have been reflected herein. The results of operations for the three and nine months ended September 30, 2020 2021 are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the years ended December 31, 2019 2020, and 20182019 have been omitted.

Principles of Consolidation

Our consolidated financial statements include our accounts and the accounts of our 100% owned subsidiary, Alpha Energy Texas Operating, LLC. All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing, and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1)(1) recorded transactions are valid; (2)(2) all valid transactions are recorded and (3)(3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.

Basic and Diluted Loss per share

Net loss per share is provided in accordance with FASB ASC 260-10,260-10, "Earnings (Loss) per Share". Basic income (loss)loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. For the three and nine months ended September 30, 2020 2021 and 2019,for the three months ended 2020, there were 148,328168,328 and 142,446148,328 shares issuable from the convertible credit line payable which were considered for their dilutive effects but concludedwere determined to be anti-dilutive respectively. Fordue to the nine months ended September 30, 2020 and 2019, there were 148,328 and 142,446 shares issuable from convertible credit line payable which were considered for their dilutive effects,Company's net loss, respectively.

The reconciliation of basic and diluted loss per share is as follows:

Fair Value of Financial Instruments

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amount of the Company’s financial instruments consisting of cash and cash equivalents, accounts payable, notes payable and convertible notes approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

Recently Issued Accounting Standards Not Yet Adopted

The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that there are no other recently issued accounting pronouncements that will have a significant effect on its financial statements.

Revision of Prior Period Financial Statements

In 2020, the Company identified errors in account balances in the Form 10Q filed for the nine months period ended September 30, 2019. The following accounts were deemed to contain errors: accounts payable, derivative liability, common stock, additional paid in capital, operating expenses, interest expense and loss on derivative liabilities. The errors resulted from incorrect recording of stock-based compensation and overstatements of derivative liability and amortization of debt discount.

Reclassification

Based on an analysis of Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”) and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), the Company determined that these errors were immaterial to the previously issued financial statements, and as such no restatement was necessary. Correcting prior period financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior period financial statements. Accordingly, the misstatements were corrected in the consolidated balance sheet as of September 30, 2019 and the consolidated statements of operations for the three and nine months ended September 30, 2019 and cash flows for the nine months ended September 30, 2019.

The tables below summarize previously reported amounts and the adjusted presentation of the consolidated balance sheet and consolidated statements of operations and cash flows for the affected periods:

Certain reclassifications may have been made to our prior year’s financial statements to conform to our current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.

NOTE 2– GOING CONCERN

The Company’s interim unaudited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company does not have sufficienthas minimal cash or other current assets, norand does itnot have an established ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3– OIL AND GAS PROPERTIES

On June 25, 2020, the Company entered into a Purchase and Sale Agreement with Pure Oil & Gas, Inc. (“Pure”) and ZQH Holding, LLC (“ZQH”) to acquire oil and gas assets in Rogers County Oklahoma (the “Project”) in consideration of a purchase price of $1,000,000. Pursuant to the agreement, the Company has taken assignment of all of ZQH and Pure's working interest in the Project and has recognized a note payable to ZQH and Pure as of September 30, 2020 of $1,060,000 consisting of the purchase price of $1,000,000 and the principal and accrued interest on an existing note totaling to $60,000. (See Note 6). The Company, ZQH, and Pure agreed that the sellers' combined working interest in the Project is 87.5%. The current operator of the Project and owner of the residual working interest is Premier Gas Company, LLC.

On July 6, 2020, Premier filed a mechanic’s lien in Rogers County alleging past unpaid invoices and also claiming incorrectly that Alpha’s ownership is 75% rather than 87.5%. No documentation has been provided Alpha of any past due invoices by Premier, Pure, or ZQH, and we intend to contest the lien vigorously.

The Company notes that the Project is included in the lands in eastern Oklahoma affected by a decision of the U.S. Supreme Court issued on July 9, 2020. In McGirt v. Oklahoma the Supreme Court held that a large portion of eastern Oklahoma reserved for the Creek Nation in the 19th century remains Indian Country for purposes of the federal Major Crimes Act. The impact of this decision on title to the lands and leases included in the Project is uncertain at this point, and the Company will continue to monitor developments concerning the effects of this decision.

On June 30, 2020, the Company entered into an option Agreement with Progressive Well Service, LLC to acquire oil and gas assets in Lincoln and Logan Counties in Central Oklahoma (the “Coral Project”, called the “Logan 1 Project” in the Agreement). The agreement gives the Company until December 31, 2020 to exercise its option (the “option Period”). During the option Period, Progressive may not sell the Coral Project to any third party. In return for this exclusivity, the Company issued 10,000 shares of its common stock with a fair value of $10,000, such shares to bear a legend restricting sale during the option Period. At any time during the option Period, the Company may exercise its option with a cash payment of $50,000. At closing the Company shall make a cash payment of $600,000 to Progressive (the “Project Payment”) and guarantee to Progressive a further payment of 3% of the net revenue stream from any new wells drilled in the Coral Project (the “Production Payment”) until Progressive has received an additional $350,000.

On September 8, 2020, the Company entered into an Option Agreement with Kadence Petroleum, LLC. (“Kadence”) to acquire oil and gas assets in Logan County in Central Oklahoma, called the “Logan 2 Project” in the Agreement). The Agreement givesAgreement. In the course of performing its due diligence procedures, the Company until February 8, 2021discovered that Kadence did not have title to exercise itsthe properties in the agreement. The Company had advanced $85,500 in option (the “Option Period”). payments through September30,2021. The agreement is cancelled, and the Company wrote off the $85,500 as of September30,2021.

During the option Period, Kadence may not sell the Logan 2 Project to any third party. In return for this exclusivity, nine months ended September 30, 2021, the Company will pay $10,000 per month.paid $60,000 in Option Payments to Progressive Well Services in connection with its Option Agreement dated June 30, 2020 to acquire oil and gas assets in Logan County, Oklahoma. The Company paid $10,000Option Agreement has been extended to Brian Tribble, Managing Member of Kadence, through AEI Acquisition, LLC revolving credit note, on September 18, 2020. At closing, Alpha shall tender to Kadence a cash payment of $350,000 (the “Project Payment”). Alpha shall agree at Closing to make a monthly payment equal to 3% of the net revenue stream from any new wells (not workovers, restarts, or recompletions) drilled in the Project area after the Closing until such time as Kadence shall have accrued $800,000 from such new wells (the “Production Payment”). Together, the Option Payment, Production Payment, and Project Payment shall satisfy the Purchase Price.October 31, 2021.

NOTE 4– RELATED PARTY TRANSACTIONS

The Company received advances from related parties totaling $1,000$400,460 and $0 and repaid advances from related parties totaling $856 and $53,375$1,014,959 during the nine months ended September 30, 2020 2021 and 2019,2020, respectively. During the nine months ended September 30, 2021 and 2020, these advances included payments of $17,760 and $3,959 for expenses paid on behalf of the Company and $65,500 and $1,010,000 for unpaid oil and gas assets acquired, respectively. The advances from related parties are not convertible, bear no interest and are due on demand. During the nine months ended As of September 30, 2021, and December 31, 2020, there was $581,460 and 2019, a related party paid $3,959 and $42,406$181,000 of expenses on behalf of the Company, respectively. There was $1,000 and $397short-term advances due to related parties, asrespectively.

As of September 30, 20202021 there was $180,919 of accounts payable related parties which consisted of $170,984 due to Leaverite Exploration for Interim President Jay Leaver, $4,145 due to CFO John Lepin and $5,790 due to Staley Engineering LLC for consulting services.

As of December 31, 2019, respectively. 2021 there was $120,568 of accounts payable related parties which consisted of $110,894 due to Leaverite Exploration for Interim President Jay Leaver, $3,884 due to CFO John Lepin and $5,790 due to Staley Engineering LLC for consulting services.

The Chief Financial Officer allows the use of his residence as an office for the Company at no charge.

NOTE 5– COMMON STOCK

The Company is authorized to issue up to 10,000,000 shares of $0.0001$0.001 par value preferred stock and 65,000,000 shares of $0.0001par$0.001 par value common stock.

The Board of Directors authorized the Company to sell 1,300,000 shares of common stock at $1.00 per share to raise working capital.

During the nine months ended September 30, 2020 and 2019 , the Company sold 70,000 and 213,000 shares of common stock for total proceeds of $70,000 and $213,000, respectively.

During the nine months ended September 30, 2020, the Company issued 10,000 shares of common stock with a fair value of $10,000 for lease acquisition cost for unproved properties.

During the nine months ended September 30, 2020, the Company issued 5,000 shares of common stock with a fair value of $5,000 to settle outstanding accounts payable balance.

The Company compensates each of its directors with 4,000 shares of common stock each month. During each of the nine months ended September 30, 2020 2021 and 2019,2020, the Company issued 144,000 shares of common stock valued at $144,000.

During the nine months ended September 30,2019, 30, 2021, the Company issued 160,00090,000 shares of common stock with a fair value of $160,000$90,000 to settle accounts payable of $210,250. The Company recognized a gain of $120,250 on settlement of accounts payable.

During the nine months ended September 30, 2021 and 2020, the Company sold 5,000 and 70,000 shares of the common stock for total proceeds of $5,000 and $70,000, respectively.

On April 1, 2021, the Company entered into a month-to-month consulting agreement with Kelloff Oil & Gas, LLC for consulting services.services that includes cash compensation of $10,000 and the issuance of 5,000 shares of common stock per month. The Company may terminate the agreement at any with a ten-day notice. During the nine months ended September 30, 2021, the Company issued 30,000 common shares and recognized $30,000 of stock-based compensation related to the agreement.

NOTE 6– NOTE PAYABLE

On March 30, 2019, the Company executed a promissory note for $50,000 to ZQH (75%) and Pure (25%). The due date of the note is April 30, 2019 and has an interest rate of $50 per day. The note is for an escrow payment made directly to Premier Gas Company, LLC to hold the Purchase and Sale Agreement dated January 29, 2019. The note is secured by 50,000 shares of the Company’s common stock at $1 per share. On JuneSeptember 25, 2020, the Company entered into a Purchase and Sale Agreement (“PSA”) with Pure.Pure and ZQH to acquire oil and gas assets in Oklahoma (the “Rogers Project”) in consideration of a purchase price of $1,000,000. (See Note 3). In connection with the purchase, the $50,000$50,000 note and accrued interest of $10,000 was added to the purchase price resulting in a total note payable balance of $1,060,000. During the nine monthsyear ended September 30,December 31, 2020, $10,750$10,750 of accrued interest which was previously outstanding was discharged and recorded as a gain on extinguishment of debt. The note payable of $1,060,000$1,060,000 was due to be paid on or before July 31, 2020 but remains outstanding to date. The balance of the note will increase by $50,000 per month thereafter up to a maximum amount of $200,000 through December 1, 2020. As of September 30,December 31, 2020, the Company recognized $100,000$200,000 of default interest that was added to the principal and made payments of $100,000 for a total payable of $1,160,000. If the purchase price is not fully paid on or before December 1, 2020, ZQH and Pure have the option to convert the balance outstanding into the Company’s common stock at a conversion price of $1.00 per share and the note will also be subject to a monthly interest of 1%. During the nine months ended September 30, 2021, the the Company recognized $50,000 of default interest that was added to the principal of the note payable. As of September 30, 2021, the note payable balance was $1,210,000 with accrued interest of $56,073. The Company, Pure, and ZQH have entered into various Extension Agreements, the current one of which is dated March 28th,2021 (the “Extension Agreement”). The Extension Agreement prevents Pure and ZQH from taking stock rather than cash through September 1, 2021, in return for which Company makes a monthly interest payment to ZQH and Pure of $10,083, which represents 1% annual interest on the Purchase Price, compounded monthly. The Extension Agreement allows the Company to extend that period beyond September 1, 2021 under similar terms. No further Extension Agreement has been entered into to date.

NOTE 7– CONVERTIBLE CREDIT LINE PAYABLE – RELATED PARTY

On September 1, 2017, the Company entered into a convertible credit line agreement to borrow up to $500,000. On the same date, the outstanding balance on a note payable of $87,366 was exchanged as a draw on the credit line. The loan modification is considered substantial under ASC 470-50.470-50. The outstanding balance accrues interest at a rate of 7% per annum and the outstanding balance is convertible to common stock of the Company at the lesser of the close price of the common stock as quoted on the OTCBB on the day interest is due and payable immediately preceding the conversion or $1.50. The Company analyzed the conversion options in the convertible line of credit for derivative accounting consideration under ASC 815, Derivative and Hedging, and determined that the transaction does qualify for derivative treatment. The Company measured the derivative liability and recorded a debt discount of $87,366 upon initial measurement. During the year ended December 31, In 2019, the Company recognized an additional debt discount of $7,568$7,568. During the nine months ended September 30, 2020, the Company received $8,500 in cash proceeds from the credit line and recognized an additional debt discount of $5,851. During the nine months ended September 30, 2021 and 2020, the Company amortized $2,754 and $14,926 of the discount as interest expense, respectively. As of September 30, 2021, and December 31, 2020, the unamortized discount was $0 and $2,754, respectively. See discussion of derivative liability in Note 8 – Derivative Liability.

On June 1, 2021, the Company entered into a new convertible credit line agreement to borrow up to $1,500,000. The new convertible line agreement supersedes the original note dated September 1, 2017 and matures on June 1, 2023. The outstanding balance accrues interest at a rate of 7% per annum and the outstanding balance is convertible to common stock of the Company at the lesser of the close price of the common stock as quoted on the OTCBB on the day interest is due and payable immediately preceding the conversion or $4.00. The Company analyzed the conversion options in the convertible line of credit for derivative accounting consideration under ASC 815, Derivative and Hedging, and determined that the transaction does qualify for derivative treatment. The Company evaluated the new convertible credit line for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt modification as the borrowing capacity under the new credit line is greater than the borrowing capacity under the original credit line. There were no fees paid to the creditor and no unamortized deferred costs on the original credit line. Accordingly, no expense was recognized in connection with the transaction.

On August 8, 2021, the Company received $20,000 in cash proceeds from the credit line. During the nine months ended September 30, 2021, the Company recognized an additional debt discount of $15,362 and amortized $39,514$1,461 of the discount as interest expense, leaving an unamortized discount of $17,396$13,901 as of December 31, 2019. During the nine months ended September 30, 2020, the Company recognized an additional debt discount of $5,851 nd amortized $14,926 of the discount as interest expense leaving an unamortized discount of $8,321 as of September 30, 2020. See discussion of derivative liability in Note 8 – Derivative Liability.

During the nine months ended September 30, 2020 and 2019, the Company received $8,500 and $0 in cash proceeds from the credit line and made $4,250 and $11,000 in cash payments to the outstanding balance on the credit line, respectively. 2021. The outstanding principal balance on the convertible credit line as of September 30, 2020 2021 amounted to $148,328.$168,328.

NOTE 8– DERIVATIVE LIABILITY

As discussed in Note 1, on a recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s financial liabilities, measured at fair value on a recurring basis, as of September 30, 2020 2021 and December 31, 2019:2020:

Utilizing Level 3 Inputs, the Company recorded a loss on fair market value adjustments related to convertible credit line payable for the nine months ended September 30, 2020 and 2019 2021 of $22,252 and $465,575, respectively.$24,299. The fair market value adjustments as of September 30, 2020 and 2019 2021 were calculated utilizing the Black-Scholes option pricing model using the following assumptions: exercise price of $1.00, computed volatility 132% and 138%of 202% and discount rate 0.11% and 1.63%, respectively.of 0.28%.

A summary of the activity of the derivative liability is shown below at September 30, 2020:

NOTE 9 – SUBSEQUENT EVENTS2021:

Subsequent to September 30, 2020, the Company sold 5,000 shares of the common stock for cash proceeds of $5,000.

Subsequent to September 30, 2020, the Company received a short term related party loan of $40,000 for working capital. The unsecured loan is non-interest bearing, has no specific terms for repayment and payable on demand.